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Prosperity and poverty of nations: Using global models to explain and mitigate underdevelopment in Nigeria

Naanen

Naanen

CONTINUED FROM YESTERDAY
Inaugural lecture by Prof. Benedict Bernard Benapena Naanen, BA (Nigeria), MA, PHD (Dalhousie), Department of History and Diplomatic Studies, University of Port Harcourt.

The development structures and institutions that had been put in place in the late 1940s and 1950s continued till the outbreak of the civil war in 1967. The war brought massive disruption to the national economy. That of Eastern Nigeria which was rechristened Republic of Biafra collapsed.

The issue of lack of development finance which bedevilled existing development initiatives was now mitigated by the oil boom which started in 1973 following the Arab-Israeli conflict of that year. From 12 million dollars in 1960 Nigeria’s crude oil earnings rose to 94.44 million in 1976, taking a plunge from the late 1970s and reaching a nadir of 47.7 in 1986. Thereafter it continued to oscillate reaching 467.7 billion dollars in 2005, the year that crude oil price reached the psychological threshold of 60 dollars per barrel. As crude oil prices continued to climb following the economic boom in the emerging markets of Asia and Latin America, Nigeria earned a record…. in 2007, took a plunge again with the turbulence in the world economy in 2008-2009. Between 1960 and 2013 Nigeria earned a total of … from crude oil.

The questions have often been asked, what impact has large crude oil earnings had on Nigerian development; is oil a curse or a blessing? This debate is not limited to Nigeria as it is applicable to other resource-based economies, bringing about the resource curse thesis or what other analysts have referred to as the “paradox of plenty” For sure oil has brought tremendous impact on government revenues.

It has engendered massive spending and investment in infrastructure and to some extent, on social programmes although these have not been sustained.1 (Naanen & Tolani, 2014, p. 28). However the overall impact of oil on the Nigerian economy continues to be an issue of debate. There is almost a unanimity of opinion that Nigeria has not made the best of the oil boom. In terms of economic and social performance the country fares the least among OPEC countries.
The impact of the oil boom on job creation, for instance, has been limited. By its technically intensive nature, the upstream sector of the oil and gas industry does not generate comparable job opportunities like manufacturing and the service industry. Once the oilfields and pipelines are established it requires a limited number of workers to guard and keep the facilities working. This is unlike the solid minerals industry where mining-related operations employ large numbers of workers. SPDC, which produces 41 percent of Nigerian oil, employs about 4,000 staff while its contractors employ another 20,000.

In the absence of any solid data, it can be reasonably estimated that both the upstream and downstream sectors of the Nigerian petroleum industry employs no more than 250,000 people. (ibid), while it contributes 34 percent of the GDP. Considering that the oil industry is the leading sector of the Nigerian economy, this contribution to job creation is too modest. By contrast, South Africa, another country dominated by extractives, the mining sector in 2011 contributed 19 percent of the GDP, 50 percent of merchandise exports and generated about one million jobs.

Resource Curse
A growing body of literature identifies oil as the cutting edge of the resource curse thesis (leading authorities – Richard M Auty, Terry Lynn Karl, Jehangir Amuzegar) . The main factors accounting for the poor development outcome of oil windfalls can be summarized as follows:

Oil booms raise expectations and increase appetite for spending.

Governments dramatically increase public spending based on unrealistic revenue projections.

Booms decrease the quality of public spending and encourage rent-seeking.

In developing countries booms undermine effective governance and encourage corruption.

The volatility of oil prices hinders growth, distribution and poverty alleviation.

Booms encourage the loss of fiscal control and inflation, further hampering growth, equity and the alleviation of poverty.

Foreign debts grow faster in oil exporting countries, mortgaging the future.

Non-oil productive activities, like manufacturing and agriculture, are affected by the oil sector which produce the dutch Disease syndrome.

Unsustainable oil exploitation creates environmental problems which destroy local livelihoods

The struggle over access to oil wealth generates violent conflicts

All the above conditions are not inevitable. OPEC members in the Gulf region have over the years learnt how to manage their windfalls better, producing spectacular progress through economic diversification and improved governance, overcoming the worst of resource curse scenarios. Nigeria has also learnt some lessons.

For instance, it has been trying to control its external debt profile, having benefitted from the large international debt write-off of 2005. It has also been trying to manage its budget, avoiding unrealistic revenue projections by setting revenue benchmarks below current oil prices.

Regardless of these efforts, the main thrust of the resource curse thesis remains true for Nigeria. More than 60 percent of its estimated population of 160 million people continue to live in abysmal poverty. Endemic corruption and resource-related conflicts continue to bedevil the country. Nigeria remains high in the Transparency International corruption perception index. In 2003, it occupied 154th position and 161, 172 and 158 in 2005, 2008 and 20012, respectively.

A 2003 study showed that out of the 47 incidents of conflict identified in Rivers, Bayelsa and Delta states, 60 percent of them were related to the control of oil-bearing lands by communities and compensation by oil companies. Citizens in the oil-producing region continue to be agitated by their perceived exclusion from the benefits of the oil economy. The Nigerian state remains dysfunctional with its institutions highly weakened while governance continues to be ineffective. In developing a theory of Nigerian politics, we have stated that contestations for power in the country, be it under the past military dictatorships or the current civilian dispensation, continues to be driven by the desire to control oil income.

Corruption and underdevelopment
Of all the attributes of resource curse, corruption seems to have had the most profound negative impact on development in Nigeria. The issue of corruption has become so proverbial in the country that discussing it does not seem to generate any extraordinary interest anymore. Other than the huge development resources that are stolen and laundered locally and abroad, corruption weakens the state and its institutions and undermines the prospects of development. It is estimated that Nigerian elite stole between 400 billion 600 billion dollars between 1960 and 1999 and that the amount stashed in foreign accounts rose from 50 billion dollars in 1999 to 170 billion dollars in 2003. Even allowing reasonable error margins, the 2003 estimate represents 10 times the 2015 budget. We can imagine the impact of such a gargantuan amount on electricity supply, health care delivery, educational development, infrastructural expansion, etc.

Other than the financial haemorrhage, corruption underdevelops a nation in several ways. For instance, it undermines the implementation of projects and the delivery of development targets. The country has become a veritable graveyard of failed projects primarily linked to corruption. Let me parody a joke that appeared in the Economist magazine several years ago to illustrate the impact of corruption on national development.

A top Nigerian bureaucrat visited a friend, a school mate in their student days at a British university. He saw some expensive cars at his host’s residence. The Nigerian visitor asked his Asian friend how he was able to make it. The Asian host showed him a state of the art highway and answered “10 percent”. He had collected 10 percent of the value of the contract and still got the job done. The Asian friend paid a return visit to his Nigerian friend and saw a park of exotic cars at a palatial mansion that flabbergasted him. How did you do it? The Asian visitor asked. The Nigerian guest took his Asian friend on a luxury ride and pointed to a jungle. “100 percent” he said.

The money for the highway that was supposed to cut through that jungle has been embezzled and no job was done. That is comparative corruption whose lesson is not lost in terms of the levels of development in Nigeria and among the Asian Tigers. Years ago theft of public fund by individuals was in millions of naira. But now it is in billions and the sensitivity of Nigerians seems to have been deadened to even the most outrageous cases of theft. Of all the factors that impede development, perhaps the only one that compares with corruption is incompetent and visionless leadership.

Part 4: Lessons from former underdeveloped countries
Breakout nations

Vice-Chancellor, Sir, I disagree with colleagues and other analysts who aver that underdeveloped countries cannot change their economic status, that “there cannot be another Japan after Japan.”

The world economy has witnessed dramatic changes in the past thirty years. Some of the underdeveloped countries of South Asia and the Pacific Rim have joined the ranks of developed countries. Others are in a hot race to catch up. Within a generation Singapore and Malaysia transformed from poverty into world class economies. Citigroup estimated that Singapore would be the world’s number one economy by 20302. The Brazilian economy in 2012 surpassed the GDP of Britain. Amongst others, four factors were fundamental in the emergence of these economies.

First, all of them embraced the market economy. Second, state institutions are strong and resilient to implement policies efficiently. Third, all of them endured varying degrees of national sacrifice. Fourth and most important, the countries were propelled by visionary,enlightened and decisive leaders. Although these leaders were elected through different forms of franchise, their style of leadership and political orientation demonstrated a marked variation. Their orientation ranged from liberal democracy to what this lecturer prefers to call “authoritarian democracy”. We may also defer to Acemoglu and Robinson’s theory of inclusive political and economic institutions in attempting to explain the rise of these economies.

Singapore
Let us take a few cases to explain this point, starting with Singapore, which is one of the best known stories of economic miracle3 in recent time. Like Nigeria, Singapore was under British rule for nearly a century. At Independence in 1963 (Nigeria, 1960), Singapore was a poor, underdeveloped country with a per capita GDP of about $350. Much of the city-state’s three million people were unemployed. More than two-thirds of its population was living in slums and squatter settlements on the city’s fringe. It lacked natural resources, sanitation, proper infrastructure, and adequate water supply. But in spite of these glaring disadvantages, the country’s GDP per capita had shot to 60,000 by 2014, becoming the sixth largest economy in the world. The country enjoys one of the highest standards of living in the world. It is being projected that it will be the world’s number one economy in 2040. In order to stimulate development, Lee sought international assistance, but his pleas went unanswered, leaving Singapore to fend for itself (Ping Zhou, 2014)4. The three fundamental factors mentioned above account for this phenomenal achievement.
Much of the phenomenal achievements of Singapore is connected to the visionary and decisive leadership of Lee Kuan Yew, an Oxbridge educated lawyer who led the country from 1959 to 1990 under a system of authoritarian or managed democracy, and continued to play top advisory roles in government till 2011. In order to develop the country Singapore searched for foreign assistance, which was not forthcoming.

The country was left to fend for itself. To create jobs and enhance prosperity, the country embarked on a massive programme of industrialization, focusing on labour-intensive industries. Since Singapore is a small country, to overcome the limitation of internal market, Lee embraced globalisation so that the country’s goods and services could reach a worldwide market. Of course Singapore did not have the capacity for its ambitious industrialisation programme. So he made the country attractive to foreign capital.

To ensure the domestic stability and foreign investment needed to achieve his vision, Lee made Singaporeans to forgo some of their basic freedoms under his authoritarian leadership. Many may not find Lee’s authoritarian rule acceptable but that was the sacrifice the people had to make.

Periodic elections were held but these elections continually returned Lee to power under what amounted to a one-party state. In order to attract investors, Singapore had to create an environment that was safe, corruption- free, low in taxation, and unimpeded by unions.

Anyone caught conducting narcotic trade or intensive corruption would be met with the death penalty. Lee’s People Action Party (PAP) repressed all independent labour unions and consolidated what remained into a single umbrella group called the National Trade Union Congress (NTUC), which the state directly controlled. Individuals who threatened national, political, or corporate unity were quickly jailed without much due process. The country’s draconian, but business-friendly laws became very appealing to international investors. Today life expectancy in Singapore is at an average of 83.75 years, making it the third highest globally. Corruption is minimal and so is crime. The country is considered to be one of the best places to live on earth, if one does not mind the strict rules.

China

China’s dramatic economic prowess and global impact is a much more familiar story. Unlike Singapore that held periodic popular elections regardless of the process and outcome, China has not made any pretence about liberal democracy. Under a doctrine of one country two systems (a predominantly capitalist economy and a communist political system), the country continues to be firmly under the control of the Communist Party of China. When Chinese students seized control of Tiananmen Square in 1989 demanding political openness for their country, the communist leadership moved in Red Army tanks to bloodily crush the uprising.

In 1978, China was one of the poorest countries in the world. The real per capita GDP of the country was only one-fortieth that of the U.S. and one-tenth the Brazilian level. Since then, China’s real per capita GDP has leapt at an average rate exceeding 8 percent per year. As a result, China’s real per capita GDP is now almost one-fifth the U.S. level and at the same level as Brazil. This rapid and sustained improvement in average living standard has occurred in a country with more than 20 percent of the world’s population so that China is now the second-largest economy in the world.

Although Acemoglu and Robinson have contended that as in any other “extractive” political regime China’s growth will not be sustainable on the long run, for now at least china is clearly an economic titan that together with its population size has emerged as a global leader. Again, in China the people have contributed their own sacrifice in terms of restriction on their basic freedoms under their communist revolution of 1949, which swept off the old monarchical order. The one-child per family rule is another major sacrifice that the people of china had to contend with. Without such a policy the population impact would have been too obvious over and above the current 1.3 billion souls, neutralising the country’s economic achievement.

The political choices made to achieve growth and prosperity continue to vary. While the two cases already examined have sacrificed political freedom and civil liberty for growth and prosperity, other emerging economies have taken the path of liberal democracy. Of the five BRICS nations, three have chosen the path of open democratic system (Brazil, India, and South Africa), while two have variations of authoritarian rule (Russia and China).
Nigeria, the way forward: Towards a theory of national breakthrough.

So far we have seen the basic ideological and policy choices made by Nigeria to create prosperity and enhance the living standards of citizens since British rule. As Francis Fukuyama has postulated in his acclaimed The End of History and the Last Man, liberalism (market economy and liberal democracy) has become the universal ideal since the end of the Cold War. As in the developed and emerging economies, the market system has historically been Nigeria’s choice. But that system has hardly produced the desired level of socio-economic impact in the country.

The obstacles to market-led growth and development in the country, therefore, seem to be “made in Nigeria”. Although some measure of progress has been made over the years, the country remains predominantly underdeveloped and living conditions continue to be abysmal for the large majority. That more than 60 percent of Nigerians still live in poverty in the second decade of the 21st century despite the country’s resource endowments, is hardly excusable.

The resource curse is clearly at work in the country. Contrary to the prognosis of certain “feel good” analysts, the prospects of a real breakthrough seem so distant, given the current development trajectory and economic and social indices indicated above (Tables 2). We performed poorly in the pursuit of the Millennium Development Goals. As a historian I am aware that historically, progress in most nations had hardly been a straight, linear graph, that countries that were performing well also suffered setbacks, which at times seemed to be one step forward, two steps backward, in their struggle for development. War, natural calamities, and the cyclical trend of the capitalist world economy are some of the factors responsible for economic setbacks.

But the historian’s compulsive optimism sometimes seems to give way to pessimism when I observe the trend of our national development. Our actions seem to make me think that our country has embarked on a course of self-destruction. Why should the elite engage in what is apparently competitive looting of the public treasury involving unspeakable sums of money, depriving the country of scarce development resources? As a nation we often do not respond to challenges decisively by devising our own solution until we are overwhelmed and expect outsiders, especially the West to bail us out.

The most recent case is the Boko Haram insurgency which nearly made Nigeria a failed state. The game changer was the involvement of our neighbours which made troops from Chad – a country we normally consider to be behind Nigeria – sweep across the border into Nigerian territory to chase Boko Haram fighters at a time Nigerian troops seemed overwhelmed by the rag tag insurgents. Clearly decisive measures which cannot come without pain are needed to make Nigeria achieve the illusive economic breakthrough.

The issue of an economic breakthrough is complex and not one that lends itself to easy solution. But as we have seen, nations have in spite of what seemed to be insurmountable odds risen to great heights and have created prosperity and relative contentment for their citizens. We have also got an idea of how some of these successful nations were able to make it. That guides us in our effort to find an answer. That complicated answer seems more political than economic. While not making any pretence to a grand theory, our duty for the moment is to deconstruct these complications and demystify socio-economic progress by identifying a simple formula that when applied can point to that illusive answer. That formula has three crucial variables. The first is a visionary, enlightened and decisive (political) leadership; second, strong andeffective national institutions; third, doing first things first (building the right foundation), which comes from effective national planning.

The complicated maze of factors, including macro and micro-economic issues and social policies that underpin socio-economic performance fit under these three critical factors. Mathematically expressed,Great leadership + strong and effective institutions + doing first things first = prosperity and national greatness.

Visionary, decisive and enlightened leadership
To state an obvious fact, more often than not nations are made or marred by the quality of their leadership. Many historians relegate the role of accidents in history and do not believe nations are made by accident. So great nations are never products of accident, rather they are results of complex and conscious processes of nation-building, social engineering and national sacrifice. There cannot be a great nation without great leaders.

  • Great leaders will:
  • First, conceive a vision
  • Then design a strategy to attain that vision
  • Know where to take their nation and how to arrive at that destination
  • Pursue their vision with focus and integrity, mobilize, inspire and earn the support of citizensProceed to build strong institutions and the institutions in turn will define the trajectory of successive leadership.

Since economic performance is the bedrock of national greatness, the visionary leaders will have a focused economic programme, the big picture.

Strong and effective institutions will:

  • Check corruption
  • Ensure that economic and development policies conceived by the visionary and enlightened leadership work in order to create wealth
  • Enforce the rule of law and ensure the large majority of citizens are inspired to do the right thing in order to build a prosperous nation.
  • In Nigeria, a strong and transparent EFCC will successfully check financial crimes which result in the looting of the national treasury, undermine confidence in our economy and discourage investors.
  • A strong and honest police force will enforce the law without fear or favour
  • A strong and independent judiciary will interpret the law without fear or favour
  • A strong INEC will conduct free and fair elections without fear or favour to sustain our democracy.

    Doing first things first will
  • Enable us to know where to start in planning our development
  • Make us to know that in planning economic development, we have to start with the basics, which are crucial for the attainment of the bigger objectives
  • Make us realize that development, especially industrialization which is the backbone of socio-economic progress, is not possible without first of all building the critical infrastructure, particularly ensuring adequate power supply
  • Make us realise that in planning agricultural development, for instance, we first of all remove obstacles such as barriers to land acquisition.


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